Best Buy Q2 Profit Tops View, Revenue Misses

(RTTNews) - Consumer electronics retailer Best Buy Co., Inc. (BBY) Tuesday said profit for the second quarter declined from the prior year, as revenues dropped both domestically and internationally. While earnings were ahead of Wall Street expectations, revenue missed estimates. The stock fell over 3 percent in pre-market activity.

Best Buy said consumers are increasingly researching and buying online, and traffic to its brick and mortar stores continued to decline. Yet, in-store conversion and online traffic continued to increase due to the execution of the firm's Renew Blue strategy.

Net earnings attributable to the company's shareholders declined to $146 million from $266 million in the prior year. Earnings per share fell to $0.42 from $0.77.

Earnings per share from continuing operations last year totaled $0.69. Gross margin dropped to 23.1 percent from 26.5 percent in the prior year.

Adjusted earnings from continuing operations was $0.44, while it totaled $0.32 last year.

On average, 26 analysts polled by Thomson Reuters expected earnings of $0.31 per share for the quarter. Analysts' estimates typically exclude special items.

Revenue declined to $8.896 billion from $9.266 billion in the prior year. Analysts expected revenues of $8.99 billion.

Comparable sales fell 2.7 percent, compared to a drop of 0.6 percent last year.

Domestic revenue slid 2.4 percent to $7.59 billion, primarily driven by a comparable sales decline of 2 percent, and a revenue decline of $20 million due to the less favorable economics of the new credit card agreement.

Domestic online revenue was $581 million and comparable online sales increased 22 percent.

International revenue declined 12.1 percent to $1.31 billion amid a comparable sales decline of 6.7 percent, driven by China, Canada, and Mexico; adverse foreign currency impact and the loss of revenue from large-format store closures in China.

Sharon McCollam, Best Buy CAO and CFO, said, "...industry-wide sales are continuing to decline in many of the consumer electronics categories in which we compete. We are also seeing ongoing softness in the mobile phone category ahead of highly-anticipated new product launches."

Therefore, absent any change in these declining industry trends and with limited visibility to new product launch quantities, the firm continues to expect comparable sales to decline in the low-single digits in the third and fourth quarters.

Further, Best Buy said that since its first-quarter statement, Renew Blue annualized cost reductions increased an additional $40 million, bringing the total Renew Blue annualized cost reductions to $900 million.

This $40 million in cost reductions was primarily driven by efficiency improvements in the U.S. and Canada, supply chain efficiencies and lower costs associated with returns, replacements and damages.

BBY, which closed up 2.5 percent at $31.99 on Monday, declined 3.4 percent in pre-market activity.